In conversation with Jeff Bezos: CEO of the internet

This article was taken from the January 2012 issue of Wired
magazine. Be the first to read Wired's articles in print before
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What I'm about to show you," Jeff Bezos says, "is the
culmination of the many things we've been doing for 15 years.

The CEO of Amazon.com, in
regulation blue Oxford shirt and jeans, is in a conference room at
his company's spiffy new headquarters just north of downtown
Seattle. In a week's time, on September 28, he will introduce a new line of Kindles to the world. He has already shown Wired
two -- one with a touchscreen, the other costing just $79 (£50) --
but that's not what's truly exciting him. It is a third, the
long-awaited Amazon tablet, the Kindle Fire, that's his company's
most ambitious leap into the hearts, minds and wallets of millions
of consumers.

Bezos runs through the features that will soon set the tech
world ablaze -- the $199 (circa £130) price tag, the easy-to-hold
size, the seamless access to Amazon's rich and growing collection
of digital media. When the Fire is introduced, analysts will
declare it the strongest competitor yet to the iPad. Yet the Fire is not just a rival
device, but something essentially different. The iPad is the
flagship of the post-PC era -- in which the desktop is replaced by
lean, portable, gesture-driven tablets. The Fire is an emblem of a
post-web world, in which our devices are simply a means for us to
connect directly with the goodies in someone's data centre.

Although users of the iPad and the Fire will engage in many of
the same activities -- watching films, playing Angry Birds --the philosophy behind the two tablets could not
be more different. Apple is
fundamentally a hardware company -- 91 percent of its worldwide
revenue comes from sales of its machines, compared to sixper cent
from iTunes. The iPad's design, marketing and product launches all
emphasise the special character of the device itself, which the
company views as a successor to the PC -- complete with video-chat
capabilities and word-processing software. Amazon is a
content-focused company -- almost half its revenue comes from sales
of media such as books, music, TV shows and films -- and the
budget-priced Fire is designed to be primarily a passport to the
large amount of that content that's available digitally. The device
comes loaded with customers' Amazon account info, and anyone in the
US who signs up for Amazon Prime, the $79-a-year shipping service,
can access more than 12,000 films and TV shows on the Fire at no
extra charge (no UK pricing plans have been revealed as yet).

Bezos doesn't consider the Fire a device, calling it a "media
service". He sees it as an advanced mobile portal to Amazon's
cloud. That's how Amazon has always treated Kindles: new models
simply offer improved ways of buying and reading the content.
Replacing the hardware is no more complicated or emotionally
involved than changing a battery.

The iPad emphasises downloads: customers who buy music, TV shows
or movies via iTunes must download to their machine. (Even users of
its new iCloud service must download their music to listen to it --
at least for now.) This keeps iPads tethered to the paradigm of
local storage, putting a premium on machines with more memory
(which cost hundreds more). Amazon, by contrast, emphasises
streaming. Fire users can store 20GB of music for free on the
company's servers (or an unlimited amount bought from Amazon). They
can stream it freely, along with more than 100,000 videos. That's
probably why the Fire's hard drive is 8GB, half the size of the
smallest iPad's.

The glory of the iPad, as well as the iPhone, is its operating system; Apple's
proprietary iOS is one of the main selling points, and the company
regularly adds new features -- such as Siri, the voice-activated PA. The Fire is built on Google's Android OS, but a simplified version of
it. (Fire users will have access to a heavily curated subset of the
250,000 Android apps.) Bezos seems to believe that people shouldn't
care about what their OS can do and should just be able to stream
the damn film. It's a similar philosophy to Google's Chrome OS, but
tied to a proprietary piece of hardware and Amazon's media
services.

The Fire does have one compelling new piece of software: a
faster browser, called Silk. But even that's a servant of Amazon's cloud vision. Over
the past eight years, the company has capitalised on its
data-centre expertise to build a vast cloud-computing platform,
which hosts web operations for some of the world's largest internet
companies -- even competitors such as Netflix. The Silk browser
harnesses those cloud servers to do much of the processing. "We
call it a split browser, because it's half in the cloud and half on
the Fire," Bezos says. It's a hack that aims to make web pages
download much faster. But it also has grand ramifications: it
points to an era in which the device is so secondary that even
computation takes place in the cloud.

The release of the Fire shows how forward-thinking Bezos has
been. After 15 years near the top of the tech heap, he doesn't have
the same outsize profile of other internet innovators. Nobody has
made a TV biopic or Academy Award-winning drama about his rise to
power, for instance. But that may be changing. People are slowly
beginning to realise just how much of the web is powered by
Amazon's cloud services. And industry observers see Amazon's entry
into the tablet sweepstakes as further evidence that Bezos may well
be the premier technologist in America, a figure who casts as big a
shadow as legends such as Bill Gates and Steve Jobs.

In a series of interviews in Seattle and New York, Bezos sat
down with wired to share his thoughts on the cloud, commerce,
management and outer space.

Bezos:
Yeah. What we really built is a fully integrated media service.
Hardware is a crucial ingredient in the service, but it's only a
piece of it.

Price is a piece of it, too, and yours costs just $199
[in the US]. We think it's a unique approach -- premium products at
non-premium prices. We're a company very accustomed to operating at
low margins. We grew up that way. We've never had the luxury of
high margins, there's no reason to get used to it now.

How has Amazon been able to reinvent itself so
consistently over the past 15 years? As a company, one of our greatest cultural strengths is
accepting the fact that if you're going to invent, you're going to
disrupt. A lot of entrenched interests are not going to like it.
Some of them will be genuinely concerned about the new way, and
some of them will have a vested self-interest in preserving the old
way. But in both cases, they're going to create noise, and it's
easy for employees to be distracted by that. It could be criticism
of something that we believe in. It could also be too much praise
about something that we're not doing as well as the outside world
says we're doing it. We're going to stay heads-down and work on the
business.

Eric Schmidt said that there are now four horsemen of
technology: Google, Apple, Facebook and you. Do you agree? If I were making that list I would have a hard time not
having Microsoft on it. They've done a lot of innovative things,
some of which get overshadowed by their big existing businesses.
You look at something like Kinect, it's pretty cool.

As they'll be the first to tell you. As they should. It's genuine. But one question to ask
when you see a list like that is, who would have been on it ten
years ago? That will keep you humble. Go back to 1980. Who would
you have predicted to be among the four horsemen of the
personal-computer era?

IBM. Right. And Intel, maybe. But you might've had Commodore,
too, or Atari. There are always shiny things. A company shouldn't
get addicted to being shiny, because shiny doesn't last. You really
want something that's much deeper-keeled. You want your customers
to value your service. And there are companies that haven't gone
through tough times, so they're not really tested.

Amazon has had those tough times -- it took
years before you made a profit, and your stock fell dramatically as
the first tech bubble popped. Are there things that you've done
smarter because you went through that crucible? It's hard to remember how effervescent the bubble was.
People who really didn't have any passion for technology or the
internet were giving up their careers as doctors and mining
internet gold. And when the bubble popped, a meaningful fraction of
our people left. They realised they didn't really want to be doing
this. Some of them got laid off, some of them left of their own
accord. Those were not happy days. This super-valuable person you
really liked leaves. So your skin gets thicker. Not just me, but
all of the executives who stayed.

To the consternation of publishers, Amazon is
now publishing its own books. What are you doing differently? For one thing, pricing. For your typical consumer book --
I'm not talking about textbooks or anything specialised -- $9.99 is
really the highest price that's reasonable for customers to
pay.

Some publishers don't agree with you. As a company, we are culturally pioneers, and we like to
disrupt even our own business. Other companies have different
cultures and sometimes don't like to do that. Our job is to bring
those industries along. The music industry should be a great
cautionary tale: don't let that happen to you. Get ahead of it. I
think with books, we have gotten ahead of it, as have some very
forward-leaning publishers

What else are you doing differently from
other publishers? We believe that some of the royalty streams being paid
for ebooks are not high enough. That's why, in our Kindle Direct
Publishing programme, if you price your book between $2.99 and
$9.99, we give you 70 per cent of the revenue.

What plans does Amazon have to produce
content in other media? Well, we have studios.amazon.com. It's a completely new
way of making movies. [Amazon crowdsources the production of a
"test movie" until it reaches the point where a real studio takes
over.] Some would say our approach is unworkable -- we
disagree.

Amazon Web Services is dominant in hosting --
one observer says that you are the Coke of the field, and there's
no Pepsi. How did an ecommerce site wind up in the position where
it's hosting web powerhouses such as Foursquare, Nasa and
Netflix? About nine years ago we were wasting a lot of time
internally because, to do their jobs, our applications engineers
had to have daily detailed conversations with our
networking-infrastructure engineers. Instead of having this
fine-grained co-ordination about every detail, we wanted the
data-centre guys to give the apps guys a set of dependable tools, a
reliable infrastructure that they could build products on top of.
The problem was obvious. We didn't have that infrastructure. So we
started building it for our own internal use. Then we realised,
"Whoa, everybody who wants to build web-scale applications is going
to need this." We figured with a little bit of extra work we could
make it available to everybody. We're going to make it anyway --
let's sell it.

What was the internal argument against
it? The common question that gets asked in business is, why?
That's a good question, but an equally valid question is, why not?
This is a good idea, we have a lot of skills and assets to do
this well, we're already going to do it for ourselves -- why not
sell it, too? Young startups all tell me that even if Google offers
them free hosting, they still want to use Amazon.

Why do you think that is? We were determined to build the best services but to
price them at a level that customers couldn't match, even if they
were willing to use inferior products. Tech companies always have
high margins, except for Amazon. We're the only tech company with
low margins.

How did you do it? We really obsess over small defects. That's what drives
up costs. Because the most expensive thing you can do is make a
mistake. We can afford to focus on smaller and smaller defects and
eliminate them at their root. That reduces cost, because things
just work.

Target recently left Amazon Web Services to
build its own web infrastructure. Three weeks after launch, a
popular promotion took down the site. Did you get some satisfaction
from that? No. Do you know how long we served Target? Ten years. We
worked our butts off to serve them extraordinarily well. Some
people misunderstood -- "Why are you aiding and abetting a
competitor?" But they were great partners. We worked hard for two
years to help them migrate to the new system. It was the ultimate
in friendly divorces. We wanted to see their transition go
smoothly. So, no.

They could've used a few more servers,
though. Well, maybe they should've built their new thing on top
of AWS.

You've leveraged Amazon Web Services by
making use of it in your new Silk browser. Why?

One of the things that makes mobile web browsing slow
is the fact that the average site pulls content from 13 different
places on the net. On a mobile device, even with a good Wi-Fi
connection, each round trip is typically 100 milliseconds or more.
Some of that can be done in parallel, but you typically have a
whole bunch, as many as eight or more round trips that each takes
100 milliseconds. That adds up. We've broken apart this process. If
you can be clever enough to move the computation on to our cloud,
you get these huge computational resources. Our cloud services are
really fast. What takes 100 milliseconds on Wi-Fi takes less than
five milliseconds on Amazon's Elastic Compute Cloud. By moving some
of the computation on to that cloud, we can accelerate a lot of
what makes mobile web browsing slow.

Was it difficult to turn yourself from a
retail company into a consumer-electronics company? It's not as different as you might think. A lot of our
original approaches and techniques carried over very well. For
example, we've always focused on reducing the time between order
and delivery. In hardware, it's the same principle. An example is
the time between when we take delivery on a processor to when it's
being used in a device by a customer. That's waste. Why would we
own a processor that's supposed to go into a Kindle Fire that's not
actually in a customer's hands? That's inventory management.

By the way, how many Kindles have you
sold?

[Bezos gives a long, loud example of his famous
laugh.]

You don't even answer!

I know you don't expect me to.

For years you've been touting e-ink as
superior to a backlit device for reading. But the Fire is
backlit. Why should Kindle users switch? They should buy both. When you're reading long form,
there's no comparison. You want the e-ink. But you can't watch a
movie with that. And you can't play Android games. And so on.

And you now are selling a new version of the
basic Kindle for $79. At this point, why not give it away -- offer
a deal where if people buy a certain amount of books, they get a
free Kindle? It's an interesting marketing idea, and we should
think about it over time. But $79 is low enough that it's not
a big deal for many people.

Speaking of pricing, I wanted to ask about
your decision to include streaming video as part of Amazon Prime.
Why not charge separately for that? It's a completely
different service, isn't it? There are two ways to build a successful company. One is
to work very, very hard to convince customers to pay high margins.
The other is to work very, very hard to be able to afford to offer
customers low margins. They both work. We're firmly in the second
camp. It's difficult -- you have to eliminate defects and be very
efficient. But it's also a point of view. We'd rather have a very
large customer base and low margins than a smaller customer base
and higher margins.

Right now, the more recent movies and TV
shows aren't included in the [US] Prime membership. You have to buy
or rent them separately. Wouldn't it be better to offer an
all-you-can-eat package that includes premium films, even if you
have to charge a bit more? I'm a big fan of all-you-can-eat plans, because they're
simpler. We work together with a bunch of different parties -- the
studios, content owners -- and they get a say in how we offer their
content, too. But my view is, if you can simplify it for consumers,
that's the way to do it.

You've built some social features into
Amazon, but it's not a huge part of what you do. What's Amazon's
role in the social arena? It's an open question. I think what we're wondering is,
if we have a list of 500 of your friends, how can we use that to
improve ecommerce? We have some ideas. We've actually already done
some experiments but haven't found anything that we think is
exciting yet.

Your rivals treat social interaction as an
essential component. For better or worse, it is really not a part of our
culture to look at things defensively. We rarely say, "Oh my God,
we've got to do something about that existential threat." Maybe one
day we'll become extinct because of that deficiency in our nature.
I don't know. We look at things through a different lens. We say,
"Oh, here's this incredible phenomenon called social networking.
How can we be inspired by that to make our business better?" I hope
we find something.

In 2009, you bought [US clothing etailer]
Zappos. Was that a bid to absorb their "culture of happiness" and
customer service? No, no, no. We like their unique culture, but we don't
want that culture at Amazon. We like our culture, too. Our version
of a perfect customer experience is one in which our customer
doesn't want to talk to us. Every time a customer contacts us,
we see it as a defect. I've been saying for many years people
should talk to their friends, not their merchants. So we use all of
our customer-service information to find the root cause of any
customer contact. What went wrong? Why did that person call? Why
aren't they spending that time talking to their family instead? How
do we fix it? Zappos takes a completely different approach. You
call them and ask them for a pizza, and they'll get out the Yellow
Pages for you.

So where's the synergy? It's on the back end. Amazon has a huge shoe business.
Zappos has a huge shoe business. Zappos may have the size-eight
customer, and we have the size-eight shoe. Having one set of
fulfillment services for these two very different front ends, you
get to satisfy more customers more often, because you're more
likely to have their size and style and colour and so on.

Some years ago, there was some controversy
when Amazon got a patent for its 1-Click shopping. Tech patents are
so widespread that they're seen as a hindrance to creativity and
innovation. Has your thinking changed? For years, I've thought software patents should either be
eliminated or dramatically shortened. It's impossible to measure
the toll they've had on the software industry, but on balance, it's
been negative. But without software patents, you wouldn't have
exclusive rights to 1-Click shopping. If that were the price of
having a dramatic reduction in software patents, it would be
great.

You have a separate company called Blue Origin that
hopes to send customers into outer space. Why is that important to
you? It is a serious effort. When I was five years old, I watched
Neil Armstrong step on to the Moon. It made me passionate about
science, physics, maths, exploration.

Will you walk on the Moon some day? Boy. I've been asked to make tough predictions before.
That one's very tough. But that's not what this is about. If I
wanted to buy tourist trips to fly to the International Space
Station and Soyuz and those things, there's nothing wrong with
that. But that's $35 million. I want to lower the cost of access to
space.

How do you do that? I like to say, "Maintain a firm grasp of the obvious at
all times." For Amazon, that's selection, speed of delivery, lower
prices. For Blue Origin it's cost and safety. If you want to make
it so that anybody can go into space, you have to increase the
safety and decrease the cost. That's Blue Origin's mission. I'm
super-passionate about it.

Do you feel that it's a bit disconnected to
start a space-exploration company in this economically grim
time? No. We employ a lot of aerospace engineers. They have
families, their kids go to college. We buy a lot of materials.
Somebody made those materials, right?

You've also given $42 million to the Long Now
Foundation for the development of a giant clock designed to last
for 10,000 years.Does that project relate at all
to what you're doing at Amazon? It does fit into my view. Our first shareholder letter,
in 1997, was entitled, "It's all about the long term". If
everything you do needs to work on a three-year time horizon, then
you're competing against a lot of people. But if you're willing to
invest on a seven-year time horizon, you're now competing against a
fraction of those people, because very few companies are willing to
do that. And just by lengthening the time horizon, you can
engage in endeavours that you could never otherwise pursue. At
Amazon we like things to work in five to seven years. We're willing
to plant seeds, let them grow. We say we're stubborn on vision and
flexible on details. In some cases, things are inevitable. Ebooks
had to happen. Infrastructure web services had to happen. You can
do these things with conviction if you are long-term-oriented and
patient.

You're still young, but you've been at this
for a long time. Many of the other big tech
CEOs of your generation aren't around any more. Don't worry, they'll make more.

But you'll miss Steve Jobs, I assume. He was a teacher to anyone paying attention. He's gone
way too soon

What's the right shelf life for a CEO? It's variable. I like invention. It feels like the rate
of change on the internet today is greater than it was in 1995.
It's hard to imagine a more exciting arena in which to invent. It's
easy to wake up excited.